Question

Suppose the monthly income of an individual increases from Rs. 10,000 to Rs. 15,000 which increases his demand for clothes from 20 units to 25 units. Calculate the income elasticity of demand

Answer 1

Answer:

0.5

Step-by-step explanation:

Given Suppose the monthly income of an individual increases from Rs. 10,000 to Rs. 15,000 which increases his demand for clothes from 20 units to 25 units. Calculate the income elasticity of demand

The change in income of the consumer makes the responsiveness of quantity demand for clothes is income elasticity of demand.

= change in income = 15000 – 10000 = 5000  

= change in quantity demand of clothes = 25 – 20 = 5

= initial income = 10000

= initial quantity demand of clothes = 20

So income elasticity of demand = 5/20 / 5000/10000

                                                  = 1/4 / 1/2  

                                                  = 0.5